Developing many valuable skills is a must when you are a business owner. Sure, you can always hire other people to do the work, but it is also important to understand the basic bookkeeping yourself. This is important in keeping track of your business transactions and finances. Not only will it enable you to function with minimal help, but you will also be able to gain new and deeper insight into how your business works. It is also crucial for tax computations, especially if you are going to hire extra help for tax services in Kearny, NJ.
Now, take note that an accountant can do the bookkeeping for you and that it is always better to have a professional handle financial records for your business. However, if your business is on the smaller side, understandably, you would want to handle the bookkeeping side of your business yourself to save money rather than hiring an accountant for tax services in Kearny, NJ.
Here’s How You Do it:
- Learn the types of business accounts
Simply put, there are five types of business accounts:
Assets - these are resources or cash your business owns. Some examples are your inventory and accounts receivable.
Liabilities - these are obligations or debts your business owes. Accounts payable and loans fall under this account.
Revenues or income - this is money earned by your business that usually comes from sales.
Expenses - this is the cash that flows out from your business to pay for items or services. Salaries and utilities fall under this account.
Equity - this is what remains after your liabilities are deducted from your assets. This represents your held interest in the business. Some examples of this are retained earnings and stock.
Set up each necessary account and record the business transactions in the right category. Take note that your accounts won't necessarily be the same with other businesses. Also, remember to keep your personal and business expenses separate at all times.
- Set up your business accounts
Now that you know the different types of business accounts, it's time to set them up. The simplest and oldest way of doing this is by recording your accounts in a physical book. However, most businesses nowadays use computer software for recording accounts. Both the physical book and virtual record are called general ledgers.If you choose to keep a virtual record of your accounts, you can do it by:
- Using a spreadsheet software like Excel.
- Using a desktop accounting bookkeeping software like QuickBooks Desktop
- Using a Cloud-based bookkeeping software such as QuickBooks Online or Wave.
- Choose a bookkeeping method and record every transaction
- Single-entry bookkeeping - For this method, you only enter each transaction once. For example, if you receive payment from your customer, you enter that amount into your asset column only. This method is simple, but it only works if your business is extremely simple.
- Double-entry accounting system - This is the method that's most commonly used for bookkeeping. You will be entering all your transactions into a journal. Then you will record two entries into the general ledger for each transaction: a debit and a credit. Although this method is more complex, it is also more suitable for established businesses.
Once you’ve chosen the bookkeeping method that’s more appropriate for your business, it’s time to record every financial transaction, balance, the books, and prepare financial reports. It’s important to stick to a schedule when doing your bookkeeping so the work doesn’t pile up and you won’t get lost trying to balance your accounts. Also, don’t forget to store your records in a secure place.
If you need help with your bookkeeping, hire Nicholas J. Coco, CPA. He is a licensed and trusted CPA offering accounting services in Kearny, NJ. Call us today.